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26 Mar 02. BAE SYSTEMS shocked the Stock Market on Tuesday with the sudden and immediate resignation of its chief executive, denting the share price at a time when the group is battling to revive flagging profits.

BAE, Europe’s biggest aerospace firm by market value and second by turnover, said 50-year-old John Weston had quit “to pursue other interests” after spending four years at the helm and over 30 years at the company, and would be replaced by another company veteran, Chief Operating Officer Michael Turner. BAE said it was trading in line with the guidance it gave in February, but declined to discuss why Weston had left, leaving investors to speculate that the move signalled some hidden problems or a dispute over strategy.

“It worries the market. They have left themselves open to market misinterpretations,” said Stuart Fraser, fund manager at Brewin Dolphin in London, who manages about 500 million pounds ($714 million) in assets including BAE shares.

BAE denied there was anything sinister about the move, however. “There was absolutely no conflict”, a spokesman said.

Turner like Weston has been with the company his entire career and was said by company insiders to be Weston’s main rival for promotion to chief executive four years ago in succession to Richard Evans, who moved up to become chairman. He spent much of the last decade managing BAE’s civil aerospace interests, including Airbus, but also continued to take senior roles in the core defence business.

BAE’s commercial aerospace business, which centres on its 20 percent minority share in Airbus SAS, has suffered from a slump in passenger aircraft orders after the September 11 hijacked plane attacks on U.S. cities. BAE is second only in Europe to majority Airbus owner EADS in terms of combined defence industry and aerospace turnover, but civil aerospace apart is easily the continent’s biggest pure defence group, with major interests in the United States.

Industry analysts expect BAE to win lucrative military orders as the U.S government makes national security a top priority in the wake of September 11, but the airline recession has still taken its toll.

With the defence business remaining relatively robust, the company said

underlying operating profits last year were up 32 percent at £1.26bn on

sales up 7.8 percent at £13bn. But pre-tax profits were all but wiped out by goodwill writedowns and exceptional charges, including the costs of deciding to close its regional passenger jet business in the wake of September 11.

It also warned that the airline industry weakness coupled with completion of some defence export construction contracts would hurt its financial performance in 2002 before growth resumed in 2003.

BAE, which employs over 100,000 staff and is the fifth largest military supplier to the Pentagon, cut 3,700 jobs last year on the back of a fall in military orders and the crisis in the civil aviation industry.

Comment: The City has been less than impressed with John Weston for some time and rumours abounded early last year following the Nimrod revelations that he was on his way. He never seemed to recover from the BOWMAN debacle where he appeared to be the last to hear of the collapse of the Archer bid. His reported confrontation with Baroness Simons the night before at Hampton Court was one of disbelief that BAE had lost.

However, having said that, John Weston made an excellent speech at the opening of the Paris Air Show last year and his stock appeared to be in the ascendant. He was always the advocate of greater European involvement whilst observers have always suggested that Dick Evans has always looked to the USA for the next move.

The decision by the government to allow BAE to stretch its 49% foreign shareholder ceiling may bring in a US Chief Executive and firmly drive the company towards a US merger with Boeing or Lockheed Martin.

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